FOR evidence that the inclination to barter and truck is in our genes, one need venture no farther than the nearest schoolyard. Lurking within school walls is a thriving economy, which begins with swaps of one lunch item for another and progresses to the flogging of assorted sweets picked up on a weekend run down the candy aisle. Yet the informal economic education goes beyond the mechanics of supply and demand. Often enough it runs to finance: it is on the playground that many children get their first real taste of the temptation of speculation.

Every now and then a particular craze sweeps across the swingsets. The allowance money chasing the suddenly hot trinkets grows. If the frenzy builds for long enough it can attract much bigger fish: adults, yes, but also Wall Street itself. There is no better illustration of how the seductive power of the fast buck stretches from the schoolyard to high finance than the madness that swept the world of baseball cards in the 1980s and 1990s.

Your correspondent fell under the spell of the mania, shelling out what meagre allowance money was available for prized “rookie cards” (those issued for a player’s first professional season), encasing the treasure in hard plastic and then mentally spending the riches that were certain to result. While comparing collections the young punters would swap apocryphal tales of forgotten hoards found in attics or cellars that fetched unimaginable sums at auction—or similarly valuable collections thrown away by oblivious parents during an overzealous round of spring cleaning. We all made it clear to mothers and fathers that under no circumstances were our boxes full of treasure to be tossed away.

And we would wait anxiously for the arrival of the bible of our trade: Beckett Baseball Card Monthly. We paid little mind to the articles clogging up the front of the magazine and turned straight to the pages upon pages of price listings, ready to mark our collections to market and watch our paper profits grow. Collecting baseball cards was better than playing the stockmarket. The cards were real, physical, beautiful items you could flip through and admire. And card values only went up.

A baseball card is a rectangular piece of cardboard paper, about the size of a small smartphone, with the picture of a baseball player on one side and his biographical details and statistics on the other. Its origins lie in the mid-19th century, writes Dave Jamieson in “Mint Condition”, his history of the phenomenon. Early ball clubs created “trade cards” of some of their players, a popular advertising strategy at the time. Tobacco companies soon hit on the idea of putting cards inside their cigarette packages: each part of a numbered series, intended to bring the buyer back until he had collected the whole set. The pictures proved most popular with children, however, who would besiege smokers on the street asking for the picture that came in the pack.

In the 1920s the baseball card began appearing in more child-friendly form when the market for chewing gum began to expand. Gum producers snagged children’s pennies during the Depression years thanks to the lure of the collectables, and the market rebounded strongly after wartime when the Topps Chewing Gum Company released, in 1952, the first set of recognisably modern baseball cards—big and glossy—to be sold in its packages. The card industry grew alongside the popularity of baseball, then America’s undisputed national pastime.

Through the 1970s cards appealed mostly to kids interested in finding pictures of their heroes, or in completing a collection. Yet a subtle change was under way. Older aficionados, many of whom had been building their collections for decades, began swapping cards and hunting for especially rare and valuable specimens. One such cardhound, a professor of statistics named James Beckett, began polling traders on the prices they had seen or paid for particular cards.

In 1979 he put together the first edition of what would become a regular price guide. In late 1984 the Beckett guide went monthly, the better to capitalise on soaring interest. Not long after that your correspondent took up collecting cards, just as that interest was turning into a speculative fervour.

Mr Beckett may not deserve sole credit for the baseball-card bonanza, but it is hard to imagine the mania having erupted without him. In the 1970s only aficionados knew that unique cards were fetching higher prices at trade shows and auctions. Beckett Baseball Card Monthly helped create a much larger market for the cards. Readers everywhere could see how prices were moving around the country, and decide to sell old memorabilia—or fill their attics with cards in anticipation of future price rises.

Economists have wrestled with the question of whether markets are “efficient” or not for more than half a century. Eugene Fama was awarded a Nobel prize in 2013 for pioneering work demonstrating that markets quickly incorporate new information and cannot systematically be beaten. Yet others reckon markets often go haywire. Robert Shiller, for instance, showed that market returns could in fact be predicted at longer time horizons. He also reckoned people are prone to certain behavioural tics, misjudgments that depart from rationality and which can drive markets to heights of “irrational exuberance”. He was also awarded the Nobel prize, jointly with Mr Fama. Other economists have investigated ways in which markets can overshoot in one direction or another. “There are idiots,” Larry Summers once wrote in a paper on the subject. “Look around.”

Yet Mr Shiller, who warned of both the stockmarket bubble of the late 1990s and the housing bubble of the 2000s, has pointed out that it is often not just the fools piling into speculative frenzies but the experts themselves. The bankers putting together dodgy mortgage-backed securities at the height of the housing bubble were not simply corrupt or stupid: they believed that they had discovered new ways of capturing high returns at low risk—which is why they retained so much dangerous stuff on their balance-sheets. Neither did big institutional investors pile out of equities before the crash of 2000-01. The potency of a bubble is in its plausibility, to laypeople and experts alike, right up until the moment the game is over.

Bubble-spotters tend to identify a few key contributors to financial mania. There is often an initial spark of enthusiasm rooted in real value: the promise of new technology in some cases, the recognition of the worth of a scarce commodity in others. Then there is the entry of many new market participants, to add fuel to the flame. A deepening market naturally places upward pressure on supply-limited goods. But new participants also add liquidity to the market, and thus the confidence that you will be able to find a willing buyer when you wish to sell and a willing seller when you wish to buy. For local dealers, buying cards at trade shows or from the factory became less risky as the stream of eager youngsters through the shop doors grew.

Perhaps most important, speculative fervour thrives on expectations of rapidly rising prices—rising rapidly enough that buyers find it rational to make bets they could not normally afford.

By the late 1980s these ingredients were firmly in place in the market for baseball cards. The initial spark seemed to be a wave of sales of rare, vintage cards at eyebrow-raising prices. Early in the decade the 1952 rookie card of one of baseball’s all-time greats, New York Yankees star Mickey Mantle, sold for $3,000: a remarkable sum for a small piece of cardboard. There were more headlines for the repeated sales of the most valuable of all baseball cards: the 1909 Honus Wagner. The vintage tobacco card was made particularly scarce by its limited production run (due, according to rumour, to Wagner’s objection to the use of his image to sell cigarettes). Only three of the cards that survive are in decent condition. One changed hands for a shocking $25,000 in 1985. It subsequently fetched $110,000 in a 1987 sale, then $451,000 in a 1991 auction (won by the ice-hockey star Wayne Gretzky).

Such prices were the result of very limited supply meeting new demand, in the form of nostalgia-driven consumption. The baby-boom generation that had grown up in a golden age of baseball entered its prime earning years in the 1980s. Some of its members used their new-found purchasing power to recapture the stuff of their childhood memories. Their demand pushed up prices, and higher prices attracted attention.
Author and speculator

Your correspondent came to the hobby around the time the Wagner card was selling for six figures.

You could still walk into a drugstore and find packages of cards sitting by the cash register, complete with a piece of gum which had by then become an afterthought, thrown away more often than not.

Kids discovering the hobby would nag a parent or spend their allowance money on a package or two and add the cards to their hoard, often as not stored in a shoebox. The most prized cards would go in the bookbag, to be paraded before peers on the playground, or swapped to fill gaps in the collection.

The exuberance building within the community of hobbyists quickly made its way to the core market.

One schoolmate or another inevitably brought in a binder, with cards neatly ordered inside and sheathed in protective plastic. From there it was a relatively short journey to purchases of box sets: complete collections produced by card companies containing all the cards produced each year. They would sit untouched, often enough, gathering dust but remaining pristine on a closet shelf, the better to fetch a good price years down the road. I can recall the anxiety I experienced before shelling out for one of the hot new properties of the era: the Ken Griffey Jr rookie card.

Mr Griffey, who made his debut in 1989, was a near-instant superstar: a number one draft pick by the Seattle Mariners who walloped a double in his first plate appearance. He went on to enjoy a stellar career, retiring at sixth on the league table for career home runs. Yet back then he was more than a hero-in-waiting; he was a hot stock—a must-have for any baseball-card portfolio. I bought the card, sealed within a lucite case, from a dealer located in a strip mall not far from my house. And there it sat, untouched, rising in value.

In 1979, when Mr Beckett published his first official price guide, the 1963 rookie card for Pete Rose (the all-time Major League Baseball hits leader) was valued at $5, while the 1973 rookie card for Mike Schmidt, a Hall of Fame third baseman, went for 12 cents. Just five years later, when Mr Beckett’s guide went monthly, those values had risen to $350 and $65 respectively. In 1994, at the top of the market, the cards purportedly fetched $1,100 and $425. Among high-value cards the rise in prices in the decade to 1994 was on a par with equity-price increases in the ten years to 2000 and home-price gains in the decade to 2006.

Cards went for outrageous sums; and, as always happens in bubbles, people who had shared only a passing interest in the hobby found themselves buying with aplomb, for fear of looking like suckers later for having missed the obvious route to wealth. For a few strange years, children—like your correspondent and his similarly crazed brothers—piled up boxes full of cardboard, confident that their contents would only grow in value, never quite asking themselves who would buy their hoards, but never doubting that someone would.

As the boom neared its apex interest in the phenomenon spread well beyond the world of collectables, eventually garnering the interest of those more accustomed to trading stocks and bonds. Even the Wall Street Journal touted cards as an investment worth investigating, as Mr Jamieson notes in his book. “[T]he key player isn’t really Rose or [Dwight] Gooden or even Honus Wagner, but rather Paul Volcker, the rangy Federal Reserve Board Chairman. His nifty squeeze play against high inflation has made card-collecting a whole new ballgame.” In an amusing reversal of the old legend of Joseph Kennedy, the financier and political patriarch who famously sold out of the market just before the crash of 1929 after receiving a trading tip from a bell boy, the youngsters might have known something was amiss in their little hobbying world when Wall Street got involved.

How the madness took hold
In a 2013 paper Edward Glaeser, an economist at Harvard University, examined America’s long history of property booms and busts. In each case, there is an underlying logic to the speculative mania that inflates a boom. Yet across the episodes there is a clear pattern. The busts are typically triggered by some decisive change in sentiment or credit conditions. And the biggest failure of investor rationality through boom and bust is the tendency to underestimate the extent to which supply eventually responds to demand.

The baseball-card world responded in dramatic fashion to the insatiable desire for the hot items. The older, more valuable cards had never been produced in particularly massive runs, and many were lost to carelessness or the rubbish bin in the intervening decades, when there was little reason to suspect the little cardboard headshots would ever be worth a thing. Once the world began to cotton on to the possibilities in baseball cards, however, the supply dynamic changed. Less sentimental adults ransacked basements and attics for long-lost supplies, adding marginally to the number of relative rarities in circulation. But such efforts were dwarfed by the mobilisation of the card industry itself, which kicked production into high gear, producing hundreds of millions of new cards each year. New entrants appeared, like Upper Deck, which debuted a slick, upmarket set of baseball cards in 1989 to attract those buying as an investment.

In 1991, reckons Mr Jamieson, Upper Deck sold around 4 billion cards, earning $250 million in the process.

The boom continued as long as it did only because of the relatively limited interest in cashing in; cards, many collectors understood, were something one held for a time, and so many of the boxes full of newly produced sets headed directly for storage. Yet interest in collecting could only maintain momentum while published values were rising. The values published in Mr Beckett’s monthly could only wander so far from the reality in card shops and trade shows around the country. And in 1994 conditions in those markets turned decisively for the worse.

The Federal Reserve was perhaps to blame. In 1994, then under the control of Mr Volcker’s successor, Alan Greenspan, it began a series of interest-rate increases that squeezed an economy that had not fully recovered from the previous recession. But the effect of monetary tightening was overshadowed by a crisis in the sport of baseball itself. Several years of caustic negotiations between team owners and the players’ union culminated in a work stoppage in 1994 and the cancellation of the World Series for the first time since 1904. The strike cost Major League Baseball dearly—attendance and revenues fell sharply when play finally resumed—and spelled doom for the card traders and dealers whose success depended on unbroken good fortune.

Card prices fell dramatically in subsequent years and in relation to their scarcity. Cards produced during the boom years of the 1980s and 1990s frequently lost half their value or more. Few have come anywhere close to regaining their bubble highs, even after adjusting for inflation. Older cards proved more resilient. The 1963 Pete Rose had dropped in value from $1,100 in 1994 to a reported $800 ten years later, but has since rebounded to an even $1,000, according to current Beckett valuations. The true gems sailed through the crash without a scratch. The Honus Wagner card that went for just under half a million dollars in 1991 sold for $1.3m in 2000 and $2.8m in 2007.

The great boom permanently transformed the collectables industry and led, as bubbles often do, to innovation. Seeking to entice new generations of buyers, card manufacturers have experimented with new formats, including cards with pieces of game jerseys and scraps of used bat embedded: gimmicks, true, but tempting ones to those with a desire to commune with actual heroes of the diamond.

Meanwhile, a generation is still holding on to boxes upon boxes of baseball cards: children’s toys, essentially, that somehow became transmuted into something quite different. Mr Jamieson recalls his own experience attempting to unload his hoard in 2006, boggling at the rock-bottom prices they commanded on eBay, an auction site. “One guy wanted $1,500 for his ten thousand cards. He didn’t understand: we all still had our ten thousand cards.”

And so we do. Yet it is such a strange thing to have lived through and forgotten. Just a few years after the bitter collapse of the baseball-card boom, many of the same kids were intoxicated again, swapping tech stocks across fancy new online trading platforms from dorm rooms and group houses.

And then, older but no wiser, they were at it once more, borrowing recklessly for a first home and a ticket to future wealth. Three strikes, as it were.